VTT TECHNICAL RESEARCH CENTRE OF FINLAND LTD

Advanced biofuels strategy to 2030 for

the Finnish bioeconomy

Full speed towards a fossil free transport sector?

f3 & SFC Seminar, Gothenburg 3.2.2016

Nils-Olof Nylund, Research Professor

Picture: UPM

208/02/2016 2

Outline

� Policy of the Finnish government

� Means of promoting biofuels in Finland

� Study on the cost effectiveness of various measures to reduce

CO2 emissions in road transport

� What is needed to make advanced biofuels happen

Ten-year objective:

� Finland is a pioneer in the bioeconomy, circular economy and

cleantech. By developing, introducing and exporting sustainable

solutions we have improved the balance of current accounts,

increased our self-sufficiency, created new jobs, and achieved our

climate objectives and a good ecological status for the Baltic Sea.

Transport:

� The use of imported oil will be cut in half during the 2020s

� The share of renewable transport fuels will be raised to 40 per cent

by 2030

http://valtioneuvosto.fi/en/sipila/government-programme

Policies to promote biorefineries and biofuels

• The main measures to promote biorefinery and biofuel development in Finland have been:

• Enhancing the development of biofuels market by• Biofuel obligation• Structural changes to energy taxes on transport

• Funding on R&D in the area of biorefining and biofuels

• Investment aid to demonstration of biorefinery concepts

• Finland bypassed 1. generation biofuels, and has a strong focus on advanced, drop-in type biofuels

Jukka Saarinen/Ministry of Employment and the Economy

Biofuel obligation

• Came into force in January 2008 and was revised in 2010

• Outcome 2014: actual share 12.3 %, calculatory share 23,5 %

Energy share of biofuels [%]

in road transport fuels

2,0

4,0 4,0

6,0 6,0 6,0 6,0

8,0

10,0

12,0

15,0

18,0

20,0

0,0

5,0

10,0

15,0

20,0

25,0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

608/02/2016 6

Biofuel obligation (Law 1420/2010)

� The Finnish obligation is flexible in the sense that the only

requirement concerns annual average biofuel content

� It leaves the following decisions up to the actors or fuel suppliers:� split between petrol and diesel

� where and when to implement biofuels (winter conditions in northern Finland are

rather severe)

� cooperation between fuel suppliers

� “banking” of biofuel deliveries

� The background document of the obligation law states that the

expectation is that biofuels eligible for double counting according to

2009/28/EC will constitute the major part of biofuels used in Finland

in 2020

708/02/2016 7

Fuel taxation

As a general rule, Finland has opted to use obligations for

biofuels, not general tax exemptions

� A completely reworked fuel taxation system has been in place

since 2011 (law 1399/2010)

� Fair and objective system with:� Energy content tax

� CO2 emission tax (well-to-wheel approach)� Biofuels eligible for double counting:

no CO2 tax

� Tax deduction for clean burning fuels

(e.g. paraffinic fuels)

� All calculation parameters based on EU data (Directive

2009/28/EC, Directive 2009/33/EC, JRC/JEC WTW data)

0,0

0,1

0,2

0,3

0,4

0,5

0,6

Diesel FAME baseline Renewable

paraffinic diesel

baseline

Renewable

paraffinic diesel

double counting

Fuel taxes (€/l)

CO2

Energy

VTT TECHNICAL RESEARCH CENTRE OF FINLAND LTD

40% Reduction of Carbon Dioxide Emissions from

Transport by 2030: Propulsion Options and Their

Impacts on National Economy

A joint study by VTT and VATT, the Government Institute

for Economic Research

908/02/2016 9

Main conclusions

� The baseline scenario of implementing only current policy measures

leads to a situation where CO2 emissions from transport sector will be

reduced by more than 20 % in 2030 compared to 2005.

� To reduce emissions further, it will be necessary to increase the use of

low-carbon or carbon-neutral energy in transport.

� Based on the economic impacts, the most cost-efficient way to reduce

emissions is to invest in the production and uptake of domestic,

advanced drop-in biofuels. Their use will not require changes in the

vehicle fleet or on the fuel distribution system.

� Biogas is also a relatively cost-efficient option for reducing transport

related CO2 emissions, but would require a significant increase in the

number of gas-powered vehicles. However, it is not possible to set

obligations for fleet renewal or powertrain choice.

1008/02/2016 10

Main conclusions

� Major part of the raw material requirements for the new Finnish biofuel

factories could be met with the indigenous supply of wood and waste

materials.

� With focused public investment supports, new technologies can be

commercialised so that domestic production is competitive in

comparison to imports.

� Because of the high price of electric cars at present, their large-scale

uptake will not be cost-effective based on their impact on GDP until

technology advancements bring down their price significantly.

1108/02/2016 11

Objective and methodology

� Main financer: Ministry of Employment and the Economy

� Objective: To evaluate which measures could deliver a 30 or 40 %

reduction in CO2 emissions in road transport by 2030 (reference year

2005)

� Execution: Modelling the effects of biofuels and other alternative

technologies on emissions and costs, costs also from the viewpoint of

the national economy

� Main partners: VTT Technical Research Centre of Finland Ltd and the

Government Institute for Economic Research VATT

1208/02/2016 12

Framework assumptions

� Vehicle-kilometres follow the Nationwide Road Traffic Forecast 2030 by the

Finnish Transport Agency (Liikennevirasto), published in the summer of

2014

� According to the agency’s forecast, transport volumes will keep rising until 2030

� The average renewal rate of the fleet was assumed to be about 6%, which

means that the average age of the fleet remains practically unchanged at 11

years

� In the calculations for the baseline scenario, it was assumed that the actual

share of biofuels will increase to 15% by 2020 and will remain steady at

15% until 2030

� It was assumed that energy efficiency of the vehicle fleet will improve with

the renewal of the fleet, on average between 1.5 and 2% for passenger cars

and 0.5% for other vehicle categories between 2015 and 2030.

1308/02/2016 13

Framework assumptions

� Given these prerequisites, in the baseline scenario, CO2 emissions

will be reduced by some 21% from the 2005 level by 2030.

� The use of biofuels and improved energy efficiency will reduce

emissions, while growing vehicle-kilometres increase them

� Thus, additional measures are required to achieve a 30% or even 40%

reduction in CO2 emissions by 2030

� The report does not assess the impact of methods such as influencing

available means of transport or encouraging the renewal of the vehicle

fleet (e.g. by tax schemes)

� The primary purpose of the report was to assess the impact of different

propulsion solutions on emissions, as well as the impact of each option

on Finland’s economy.

1408/02/2016 14

Optimum

pathway

VATTAGE(VATT)

ALIISA

(VTT)

Methodology

Base assumptions:

Transport work

Energy efficiency

Vehicle sales

Baseline bio share

Additional costs

Vehicle sales

for alternative

scenarios

Added

vehicle

costs

Fuel

volumes

in different

categories

(per scenario)

Investments in

fuel production,

costs for production

or fuel imports

Costs of

refuelling

infrastructure

GDP

Employment

Private

consumption

CO2-emissions

Technology and vehicle fleet National economy

1508/02/2016 15

Principle of assessment (CO2 emissions)

0

Incre

ase in

mileag

e

+20%

Imp

rovem

en

t of e

nerg

y e

fficie

ncy

+ b

aselin

e b

iofu

el s

hare

-20%

-30%

+ B

TL

-40%

+ B

TL

Optimum

pathway

+ F

FV

+ C

BG

+ B

EV

+ P

HE

V

+ F

CE

V

Maximum scenarios

? ? ? ? ?

€ € € € €”DROP-IN”

1608/02/2016 16

Principle of assessment

� Alternative technologies were initially assessed one by one without

consideration to possible restrictions

� In the assessment, vehicle numbers were forced

to a level by 2030 that would allow achieving

a 40% reduction in emissions with that technology� I.e. an additional reduction of 20% in comparison

to the baseline scenario

� In the case of drop-in biofuels, the additional reduction is achievable

without the introduction of new types of vehicles� However, it does require domestically produced or imported biofuels that

are compatible with the existing vehicle fleet

� While drop-in biofuels are already widely used in Finland, they are less

popular in Europe

Mixing board

1708/02/2016 17

Success in the market

� The potential of any new propulsion solution depends on many factors.

The most important include:

1. Availability (= production);

2. Distribution system;

3. Compatibility with existing vehicle fleet; and

4. Price and consumer interest in the technology in question.

1808/02/2016 18

The technology scenarios

Scenarios 2 & 4 would require investments in fuel production

1908/02/2016 19

Impact on GDP

Please observe: general increase in

GDP from 2005 to 2030 predicted at 30 %

2008/02/2016 20

”Development 2030” scenario

2030 situation:

Total energy 3 400 ktoe

Fossil 2 200 ktoe

Liquid biofuels 1 100 ktoe (~ 32 %)

Biogas 50 ktoe (50 000 vehicles)

Electricity 50 ktoe (corresponding to

100 000 BEVs or 200 000 PHEVs)

2108/02/2016 21

Advanced biofuel producers in Finland

~400 000 toe/a ~100 000 toe/a

~ 10 000 – 15 000 toe/a

22

Summary and conclusions

2308/02/2016 23

Conclusions of the 2030 study

� Most cost efficient way for reducing transport sector’s CO2

emissions in Finland is investment in domestic drop-in biofuels

production

� Biogas and domestic ethanol have also relatively low cost, but

would require major change in car fleet

� The assumption on the average future price of EVs has a major

impact on their GDP effect

� Large scale use of EVs in Finland is not very cost efficient

(relatively to other options) before the price of EVs is significantly

lower than currently

Extended abstract in English at:

http://www.transsmart.fi/files/248/Tutkimusraportti_VTT-R-00752-15_liitteineen.pdf

Contact at VATT: saara.tamminen&vatt.fi

2408/02/2016 24

Prerequisites for success in biofuels

Cle

arly d

efined s

et

of

rule

s a

nd p

olic

ies

Susta

inable

feedsto

ck

Effic

ient

pro

cess

Adequate

fuel qualit

y

Adequate

bio

fuel sin

ks (

vehic

les)

Fair taxation

Suffic

ient

public

sta

rt-u

p s

upport

Sound b

usin

ess o

pport

unitie

s

Coopera

tion a

mong k

ey s

takehold

ers

2508/02/2016 25

Some clouds on the horizon for biofuels

� EU Post 2020 policies are not set, there will not be mandates for

renewable energy in transport

� Are Finland and Sweden the only EU countries believing in biofuels?

� Thermal conversion of solid biomass is needed to bring about

significant amounts of biofuels

� Who is willing to make significant investments in advanced biofuels

when the markets are uncertain?

� The VW scandal was not about biofuels, but it will certainly hurt diesel

passenger cars and indirectly biofuels

� Some people call for a ban of diesel cars

� 80 % of the biofuels in Europe are diesel substitutes,

only 20 % petrol substitutes

� At least in the Smart City context the EU

Commission only speaks about electric vehicles

TECHNOLOGY FOR BUSINESS